Yen Poised to Extend Gains as US GDP Fails to Ease Growth Fears

The Japanese Yen appears poised to extend gains as first-quarter US GDP data in the first quarter fails to alleviate the markets’ concerns about a global slowdown.

Talking Points

Quiet European Calendar Shifts Spotlight to 1Q US GDP Report
Japanese Yen to Rise if US Growth Gain Fails to Boost Risk Trends

A quiet economic calendar in European trading hours is likely to see the markets looking ahead to the first-quarter US GDP report. Expectations suggest output grew at an annualized pace of 3 percent, marking a strong recovery from the paltry 0.4 percent increase recorded in the three months through December 2012. The outcome may not offer much support to risk appetite absent a meaningful upside surprise however.

Much of the weakness that has recently spooked the markets about the prospects for US recovery has come from March data. That means the cumulative GDP figure will be inherently skewed toward the far more encouraging results seen in the first two months of the year. This is arguably old news at this point and may not alleviate worries about another coordinated global downturn in the pipeline.

Indeed, S&P 500 futures are pointing lower ahead of the opening bell on Wall Street, hinting at a risk-averse mood heading into the GDP announcement. The standout result following a print that fails to underpin sentiment is likely to be a further recovery in the Japanese Yen as an unwinding of carry trades encourages gains in the go-to funding currency. The unit is already on the upswing following a status-quo BOJ policy announcement overnight.

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